Investors Want Annual Reports That Offer Facts, Not Frills

January 19, 1986|By Dick Marlowe of the Sentinel Staff

Tell it like it is. That's the message investors and analysts would like to get across to those who put together those slick corporate annual reports that are becoming so bright that they glow in the dark.

While the annual report remains one of the top decision-making tools for many investors, those who study them are getting a little of weary of companies that use the reports as beacons of optimism and as four-color hype for management. Stockholders also are becoming distrustful of corporations whose annual reports tell only the good news.

In case you haven't noticed, annual reports are getting slicker than a Neiman-Marcus catalog and more bubbly than a Chamber of Commerce brochure. But according to a recent survey by Hill and Knowlton Inc., the corporations that spend tremendous amounts of money to produce those reports are about to blow their credibility with shareholders and a new breed of research-oriented investor.

Instead of those very professional full-page portraits of corporate executives and the like, investors would prefer to see corporations putting more effort into making the reports more informative, more credible and more readable.

Although individual investors still rank annual reports as their second- most-valuable source of information after business publications, they would like them to be clearer, more precise and written in simpler language.

What investors would like most of all is an annual report that includes the good news, the bad news -- and a concise explanation of what management intends to do about the company's problems.

Both the individuals and the analysts surveyed felt that most companies tend to gloss over the negative and emphasize instead the details that make management look good.

In fact, 75 percent of the individual investors surveyed said they felt that annual reports are beginning to look more like corporate advertising than financial statements by which a company's potential can be judged.

As one investor put it, ''Companies need to be honest in their annuals. They rarely are.''

Another suggested that annual reports should disclose all insider trading in companies' stock.

Some individuals, following the lead of analysts, are learning that the less-pretentious 10-K forms filed with the Securities and Exchange Commission are at least as helpful as annual reports in evaluating companies.

After business publications, annual reports and 10-K forms, individual investors have precious little to rely on when trying to determine a company's merit.

Other sources include stockbrokers' advice, statistical services, radio and TV programs, computer-accessed data bases -- and the often followed but frequently unreliable recommendations of friends and relatives.

Of those sources, the one judged to have the best potential for growth in the future is computer data bases.

Many investors like the idea of an electronic data base they can tap with their personal computers -- a new idea that could someday make the printed annual report virtually obsolete.

The survey suggests that accurate and complete annual reports are becoming vital because more and more investors are adopting a do-it-yourself attitude when it comes to buying stocks. Of the 222 individuals surveyed, 83 percent said they analyze stocks completely on their own -- or after consulting a stockbroker.

The much-talked-about ''video annual report'' was generally viewed as just about useless by those surveyed -- but the desires of the shareholders and investors are not likely to spare us from that inevitable fate. That's show biz.